Business income tax in Portugal: IRS vs IRC basics

Portugal does not use one single “business income tax” for every business. The first question is who legally earns the income. If you operate in your own name as a freelancer, trabalhador independente or ENI, your business/professional income is generally Category B income under IRS. If the activity is carried on by a Portuguese company such as a Sociedade Unipessoal por Quotas or Lda., the company’s taxable profit is generally subject to IRC.

2026 fast orientation: an individual does not simply pay a flat “business tax rate”: Category B taxable income feeds into the person’s IRS calculation. A mainland company with a tax period starting in 2026 is generally subject to a 19% IRC rate. A qualifying PME or Small Mid Cap generally gets 15% on the first €50,000 of taxable profit, with the general rate on the excess. The statutory headline rate in Article 87 is being phased down: 19% applies in 2026, 18% in 2027 and 17% from 2028 under the current transitional rule.

1. IRS, IRC and IVA are three different questions

Tax	What it broadly taxes	Typical business example
IRS	Income of individuals	A self-employed person earning Category B business/professional income
IRC	Income/profit of companies and other entities within the IRC rules	A Portuguese Lda. or Unipessoal Lda.
IVA	Taxable supplies/consumption	IVA charged, exempted or reverse-charged on invoices

These can coexist. A freelancer can owe IRS and also have IVA obligations; a company can owe IRC and also account for IVA. See our VAT / IVA guide for the transaction-tax rules.

2. If you work in your own name: Category B IRS

Business and professional income earned personally is generally Category B (rendimentos empresariais e profissionais). The taxable Category B amount is determined either under the regime simplificado or using contabilidade organizada. It is then part of the individual’s IRS position; the simplified coefficient itself is not an IRS tax rate.

Autoridade Tributária — self-employment / Category B

3. Simplified IRS regime: the €200,000 threshold

You are generally within the simplified Category B regime if the previous year’s gross Category B income did not exceed €200,000 and you have not opted for taxation based on organised accounts. At the start of activity, the estimate declared when opening activity is used for the initial classification.

You can opt for organised accounting when opening activity or, for a later change, by submitting a declaration of changes by the end of March of the year in which you want the change to apply.

Exceeding €200,000 once does not always force an immediate switch. Under current Article 28, the simplified regime ceases when the limit is exceeded in two consecutive tax periods, or in a single period by more than 25% — effectively more than €250,000 — with organised accounting applying from the following period.

CIRS Article 28 — methods for determining Category B income

4. What the simplified coefficients actually do

The simplified regime applies statutory coefficients to different kinds of gross income to determine the amount that enters the taxable-income calculation. Important current examples include:

Type of Category B income	Coefficient	Simple illustration
Sales of goods/products and qualifying restaurant/beverage/hotel activity	0.15	€40,000 × 0.15 = €6,000 before other applicable IRS rules
Professional activities specifically listed under Article 151	0.75	€40,000 × 0.75 = €30,000 before other applicable IRS rules
Other services not covered by the preceding categories	0.35	€40,000 × 0.35 = €14,000 before other applicable IRS rules

Do not choose your own coefficient. Your actual activity and the legal classification control it. Article 31 also contains other coefficients and special rules, including expense-substantiation rules for some activities. The multiplication examples above explain the mechanism; they are not complete tax calculations.

CIRS Article 31 — simplified-regime coefficients

5. Simplified does not mean “25% tax-free expenses”

A common mistake is to read the 0.75 coefficient as “the government automatically gives every professional a 25% expense deduction”. The legal mechanism is more specific. For relevant coefficients, Article 31 links the full presumed deduction to verification of qualifying expenses and deductions, subject to its formula and exceptions. Keep business invoices properly associated with the activity in e-Fatura and do not assume that every personal expense can be used.

6. Organised accounting for an individual

With contabilidade organizada, Category B income is determined using accounting rules rather than the simplified coefficients, with the adaptations required by the IRS Code. This can make sense where real deductible business costs are substantial or the activity is more complex, but it also brings greater accounting obligations. Above the statutory conditions, organised accounting can become mandatory.

The choice should be modelled using your expected revenue and genuine deductible costs rather than made solely from turnover. A contabilista certificado can compare the two methods before the March deadline.

7. How and when a self-employed person reports the income

Category B income is normally reported with the annual Modelo 3 IRS return, using the applicable business/professional annex. The ordinary filing window is 1 April to 30 June for the previous year’s income. Residents generally report their worldwide income, subject to the detailed residence, treaty and foreign-tax-credit rules.

CIRS Article 60 — IRS filing deadline

8. If the business is a company: IRC

A Portuguese company is a separate taxpayer. Its accounting result is adjusted under the IRC Code to determine taxable profit (lucro tributável) and taxable amount (matéria coletável). The company’s turnover is therefore not simply multiplied by the IRC rate.

For tax periods beginning during 2026, the general mainland IRC rate is 19% under the transitional provision of Law 64/2025. The current Article 87 text states 17%, but that rate applies to periods beginning in or after 2028; the transition sets 19% for 2026 and 18% for 2027.

9. PME / Small Mid Cap reduced rate

A qualifying small or medium-sized enterprise or Small Mid Cap carrying on an agricultural, commercial or industrial economic activity can apply a 15% IRC rate to the first €50,000 of taxable amount for periods beginning in 2026, with the applicable general rate on the excess. Eligibility is not simply “my company is small”; the statutory enterprise classification and other rules, including applicable EU de minimis rules, matter.

CIRC Article 87 — IRC rates and transitional note

10. Example: €80,000 taxable amount in a qualifying PME

If a mainland company qualifies for the reduced PME/Small Mid Cap rate and has €80,000 of taxable amount in a 2026 tax period, a simplified illustration of the base IRC is:

first €50,000 × 15% = €7,500
remaining €30,000 × 19% = €5,700
illustrative base IRC = €13,200

This is deliberately not presented as the company’s final tax bill. Municipal surcharge, autonomous taxation, tax benefits, withholding/payments on account and other adjustments can change the final position.

11. IRC can include more than the headline rate

Depending on the company, the total corporate-tax position can also involve:

Derrama municipal: municipalities can levy an annual surcharge of up to 1.5% on the relevant taxable profit and may provide reduced rates/exemptions within the legal framework. Check the municipality and year.
Derrama estadual: for larger taxable profits, additional progressive rates currently start on the portion above €1.5 million (3%, then 5%, then 9% across the statutory bands).
Tributações autónomas: certain expenses can be taxed autonomously under separate rules even where the ordinary profit calculation tells a different story.
Payments on account, withholding tax, tax credits and incentives.

CIRC Article 87-A — state surcharge

12. Company IRC return: Modelo 22

Companies normally file the annual Modelo 22 IRC return electronically. For a calendar-year taxpayer, Article 120 sets the ordinary deadline at the last day of May. A company using a different tax period generally files by the last day of the fifth month after that period ends. Separate accounting/tax reporting obligations also exist, including the IES where applicable.

CIRC Article 120 — Modelo 22 filing deadline

13. Taking money out of a company is a second question

Paying IRC at company level does not automatically make money withdrawn by the owner tax-free. Salary/remuneration, dividends, expense reimbursements, shareholder loans and other payments have different tax and Social Security consequences. Do not compare “19% IRC” with an individual’s IRS rate and conclude that a company automatically saves the difference.

14. IRS vs IRC: practical comparison

Question	Individual / self-employed	Company
Primary income tax	IRS, normally Category B	IRC at company level
How taxable business result is found	Simplified coefficients or organised accounting	Company accounts adjusted under IRC rules (or a qualifying IRC simplified regime where applicable)
2026 headline figure to remember	No single flat Category B rate; taxable income feeds into IRS	19% general mainland rate for periods beginning in 2026; qualifying PME/Small Mid Cap: 15% on first €50,000
Annual return	Modelo 3 IRS, normally 1 Apr–30 Jun	Modelo 22, normally by end of May for calendar-year taxpayer
IVA	Separate issue	Separate issue

15. Common mistakes

Calling IVA an income tax or assuming an IVA exemption also exempts IRS/IRC.
Treating a simplified-regime coefficient as the actual percentage of tax payable.
Assuming every freelancer uses the 0.75 coefficient.
Ignoring the March deadline when considering organised accounting.
Applying the 17% future statutory IRC rate to a 2026 tax period despite the transitional 19% rule.
Comparing an individual’s IRS rate with company IRC without considering how money is later paid to the owner.
Using turnover instead of taxable profit/matéria coletável when estimating ordinary IRC.
Forgetting municipal/state surcharges or autonomous taxation.
Assuming a Portuguese company automatically makes foreign-source or cross-border tax issues simple.

16. What to prepare for an accountant

Expected annual revenue, split by activity and customer type.
Expected genuine business costs and major investments.
Whether customers are in Portugal, elsewhere in the EU or outside the EU.
How much cash you need personally from the business.
Whether you will employ anyone.
Your current IRS/IRC/IVA classification in Portal das Finanças.
For a company, prior accounts, losses, payments on account and shareholder/manager remuneration.

This makes an IRS-vs-company comparison far more meaningful than comparing two headline percentages.

Official sources

Last verified: 2 October 2026. This is a practical overview, not a personalised tax calculation. Tax residence, foreign income, special regimes, transparency rules, permanent establishments, Madeira/Azores rules and the way owners extract money from a company can materially change the result.